Sometimes the perfect time to get into a stock is when there is blood on the floor. And one stock that fits this narrative nicely is Macy’s (NYSE: M). The retailer has been struggling the past couple of years and with the poor retail numbers from the end of 2016, things only became worse for this once mighty giant.
So while there is nothing but bad news about Macy’s in the headlines, the retailer actually has a handful of things going for it. In fact, these positives make the stock an interesting play if you feel like taking a risk.
Let’s dig a little bit into Macy’s and see if this is a beaten down stock you can profit from.
Macy’s was founded by Rowland Hussey Macy back in 1850 as a dry goods store to serve mill workers in Massachusetts. The original store failed, but Rowland tried again, this time moving his business venture to New York City. It saw great success and over the years morphed into what we know of Macy’s today, as a department store retailer.
In addition to running Macy’s department stores, the retailer also operates Bloomingdale’s stores. The company is also the sponsor of the Thanksgiving Day parade and July 4th fireworks display in New York City each year.
The Economics of Macy’s
As I mentioned at the start, Macy’s is struggling. Bigly. For two years straight, the company has seen sales declines at its stores. Earnings per share dropped last year by 38%. During this time, the company closed 66 stores and they have announced they are closing more stores in 2017.
The outlook Macy’s has provided isn’t pretty either, with the retailer telling investors to expect a difficult 2017 as well.
Looking at the stock price, shares are down over 40% from November and off over 50% from its high in the summer of 2015.
Why You Should Consider Macy’s
So with all of this bad news, why in the world would you want to invest in Macy’s? While things don’t look great for the retailer in the short term, things aren’t as desperate as they seem.
First, the company announced a major restructuring plan for this year, with the goal to cut costs by $550 million. Just under half of this will go towards growth initiatives to try to right the ship. The cost cutting will help to stabilize the balance sheet as it seeks to grow revenues both online and in-store. Many analysts see this cost cutting initiative as one part of a major 5 year restructuring plan the retailer is embarking on.
Second, online sales for the company is performing well. While other brick and mortar retailers struggle to convert online sales, Macy’s has found its footing, with online sales making up 18% of its revenues. If Macy’s can continue to grow its online presence, the stock will respond.
Third, in addition to online sales, Macy’s is pushing its Backstage concept to attract lower price minded consumers to the retailer. They are also pushing their Bluemercury cosmetics shops as well to help aid in revenue growth.
Finally, should things get worse for Macy’s they have a lot of valuable real estate on the books. With over 900 retail locations, these properties are in good locations that other retailers would want. So if Macy’s needs to shed more locations, it will realize some income from the sale of properties.
All of these things lead to a slow turnaround for the company. It won’t happen overnight, but investors should begin to see results by the second half of 2017 and into 2018. And while you wait for the stock price to respond, you can collect the 5% dividend the company is paying out.
This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.